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S-Corp Reasonable Compensation

Our last post helped you choose which entity is most suitable for your business. So what if you are an S-Corp? Are you confused about salary rules?

Is This Your Situation: Confused About Salary Rules in an S-Corp

You’re in business to make money to feed your family, send the kids to college or drive the sports car of your dreams. But when you’re a shareholder in an S corporation, how and how much you get paid can be controversial and a red flag for the IRS.

What is an S corporation?

Businesses are organized in many ways. In an S corporation, business income and losses pass through the business and become part of each shareholder’s personal tax return.

Why is that a good thing?

S-corp shareholders, who work as owners and employees, can save money on Social Security and Medicare taxes. The money they retain can be considered a distribution of earnings, which is exempt from payroll taxes.  Even better, S-corp officers and board members decide how much (or little) actual salary shareholders receive. If you own the S corporation where you work, you make that salary decision.  Continue reading here.

 

by Brent Ross, CPA, CFE, CPEC & SBRN Member

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